Key Takeaways
- • AQR Capital Management's Managed Futures Fund, the flagship component of the firm's $20 billion trend following strategy, has declined 19.5% from its April 2015 peak as of May 2017, according to Morningstar data.
- • The underperformance spans approximately two years, highlighting sustained headwinds for computer-driven trend following strategies during this period despite significant investor interest in algorithmic trading approaches.
- • AQR's managed futures strategy represents a substantial portion of the firm's $20 billion trend following assets under management, making the fund's drawdown a material performance issue for the alternative asset manager.
- • The decline underscores the cyclical nature of trend following strategies and their vulnerability to range-bound or mean-reverting market environments that contradict directional momentum signals.
Summary
Cliff Asness's AQR Capital Management is facing material performance challenges in one of its flagship products. The AQR Managed Futures Fund, which forms the centerpiece of the firm's $20 billion trend following strategy, has posted a 19.5% daily drawdown since reaching its peak in April 2015, according to Morningstar data cited as of May 2017. This two-year underperformance period coincides with a broader industry reassessment of systematic trend following approaches in alternative asset management.
The magnitude of the decline is particularly notable given that AQR's managed futures strategy represents a substantial allocation within the firm's broader trend following mandate. Trend following strategies, which rely on algorithmic identification and exploitation of directional market momentum across multiple asset classes, have attracted considerable institutional capital over the past decade. However, the sustained drawdown in AQR's fund illustrates the performance volatility inherent in these strategies when market conditions shift from trending to range-bound or mean-reverting environments.
For institutional investors and hedge fund allocators, AQR's current performance serves as a cautionary tale regarding the importance of strategy diversification and careful evaluation of the market regime assumptions embedded in systematic trading approaches. While trend following remains intellectually compelling and continues to attract investor capital, the experience of AQR's Managed Futures Fund demonstrates that even elite quantitative managers face extended periods of underperformance when fundamental market dynamics conflict with their underlying methodology.
The magnitude of the decline is particularly notable given that AQR's managed futures strategy represents a substantial allocation within the firm's broader trend following mandate. Trend following strategies, which rely on algorithmic identification and exploitation of directional market momentum across multiple asset classes, have attracted considerable institutional capital over the past decade. However, the sustained drawdown in AQR's fund illustrates the performance volatility inherent in these strategies when market conditions shift from trending to range-bound or mean-reverting environments.
For institutional investors and hedge fund allocators, AQR's current performance serves as a cautionary tale regarding the importance of strategy diversification and careful evaluation of the market regime assumptions embedded in systematic trading approaches. While trend following remains intellectually compelling and continues to attract investor capital, the experience of AQR's Managed Futures Fund demonstrates that even elite quantitative managers face extended periods of underperformance when fundamental market dynamics conflict with their underlying methodology.
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